The Building Code of Australia contains energy efficiency provisions for the design and construction of all Class 5-9 commercial buildings such as offices, shopping centres and hospitals. The property sector has witnessed increasing numbers of concerned occupiers as governments and large institutions aim to lease energy efficient buildings.

For instance, the Commonwealth Government released its ‘Green Lease Schedule’ in July 2007, requiring new leases by Commonwealth Government tenants (greater than 2000 square metres) to target at least a 4.5 star ABGR (Australian Building Greenhouse rating). These changes in attitudes may negatively impact the valuations of properties that are unable to comply with energy efficiency standards.

Rental values for less efficient commercial sites may fall and have a negative impact on valuations and the transferability of these energy-inefficient buildings in the near future. The changes to legislation and consumer preferences will most likely lead to accelerating obsolescence for some assets and portfolios. However, in response to the increasing obsolescence of buildings, investment in development properties may be stimulated and the building sector more broadly may experience higher demand for services.


Climate change is a far reaching and complex issue facing society and investors. There are uncertainties across virtually all sectors of the economy. For investors, there are both potential risks and opportunities. While research has concluded that the physical impact and the costs associated with mitigating and adapting to climate change will negatively impact GDP growth, the cost of inaction is expected to be higher.

Further, there are a number of sectors that will benefit from the drive for new technology, increased investment and policy changes. Investors should engage with managers on climate change issues to discuss how the climate change analysis is incorporated into their investment process. This is too large an issue to ignore. It is important to understand how managers price and assess risk and how this is incorporated into the valuation process across all asset classes. Adequate consideration and analysis of risk will ensure there is limited downside to investors. Every manager is likely to view and analyse the potential impacts of climate change differently.

As demonstrated by this article, there are numerous uncertainties and no one approach to analysing climate change is necessarily appropriate. However, ignoring the issue is clearly inappropriate across almost all sectors. At present, the physical impact of climate change and the regulatory and policy response is still unclear. As such, it is necessary to continually consider the impacts of changes to regulations in response to climate change and other factors such as higher food prices that may impact the economy and specific sectors.

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